Jim Rickards

An expert mountaineer looks at it and says, “Look, that’s very unstable. It’s windswept, it’s exposed to the sun in a certain way and it’s going to collapse. If it collapses it could kill people in the village below.”

Then a snowflake comes along and disturbs a few of the snowflakes that have already landed, which disturbs a few more, which disturbs a few more, which creates a slide, which creates an avalanche chute. The whole thing comes loose and buries the village below.

Who do you blame?

Do you blame the snowflake or do you blame the unstable snow pack?

If it wasn’t one snowflake it would have been another — the one before or the one after. You don’t blame the snowflake. You blame the instability in the snow.

When you go skiing in Aspen, what do they do in the morning? They get up at 6 am and throw dynamite down the slope. It’s a safety tactic so the snow doesn’t build up.

What are we doing in the banking system?

The thing to do would be to break up the big banks.

When Jim started in banking J.P. Morgan was five different banks. We should be breaking up the big banks. Instead we’re letting the snow pile up and we’re going to get a catastrophic collapse.

Jim has had members of the Federal Reserve board of governors tell him point blank in private that they don’t know what they’re doing. They try things and if it works they do a little more. If it doesn’t work they try something else — it’s a big science experiment.

The Fed can’t say this publicly because it would cause a panic.

They’re smart, they have PhDs, but they’re using false science. For example, people used to believe that the sun revolved around the earth. There were smart people around but they were using false science.

When you get data that contradicts your theory you’re supposed to question your theory. Instead they made the math more complicated.

Copernicus came along and said maybe the earth revolves around the sun, then Kepler came along with better observations and said maybe the orbits were elliptical. Low and behold the whole thing worked.

That’s called a paradigm shift.

PARADIGM SHIFT

We are in a world where the smartest people have the wrong paradigm.

They have equilibrium models when the world is a complex system. If you make a complex system bigger then when it collapses it doesn’t collapse with three times the force, it collapses with a thousand times the force.

It’s exponentially greater.

HISTORY

In 1998 the world was hours away from every market in the world being closed.

There was a collapse of the hedge fund Long Term Capital Management and Jim Rickards negotiated that bail out.

Wall Street bailed out the hedge fund.

In 2008 it was Wall Street that was collapsing and the central banks bailed out Wall Street.

Again we were hours or days away from a much larger collapse. If we hadn’t had the bail outs we would have been in much better shape today.

Let’s go forward to 2018.

In 1998 the banks bailed out the hedge fund and in 2008 the central banks bailed out the banks. In 2018 it’s going to be the central banks that are in distress.

Who’s going to bail out the central banks?

There’s a limit to how much the central banks can print — not a legal limit but a confidence limit.

There’s only one clean balance sheet left in the world and only one thing bigger than the central banks — the IMF (International Monetary Fund).

The IMF will print four or five trillion dollars of SDRs and hand them out. Then all of a sudden a broke country like Hungary, or maybe the United States, will have reserves and can buy tractors and get the whole game going again.

But here’s the problem — where’s the limit to that?

The plan is to use the IMF and SDRs but Jim believes we won’t get there — he believes we’re going to have a spontaneous snowflake and avalanche collapse in the meantime.

The solution when that happens will be to lock down the system.

They won’t be able to print their way out of it. They’ll freeze the bank accounts and reprogram the ATMs to limit everyone to $300 per day — basically what happened in Cyprus.